Commercial lease – Break clause – Vacant possession – Defendant tenant exercising option to break lease after first year of term provided rent paid up to date and vacant possession given by break date – Works necessary to comply with repairing obligations not completed by break date – Defendant’s workmen remaining on premises for several days thereafter to complete works – Claimant disputing validity of exercise of break clause on grounds of failure to give vacant possession – Whether vacant possession given – Claim allowed
The claimant was the landlord and the defendant was the tenant under a lease of warehouse premises. The lease was renewed in April 2008 for a further term of two years, at a rent of £278,000 payable in quarterly instalments in advance. The renewed lease contained a break clause permitting the defendant, by six months’ prior notice to the claimant, to bring the term to an end on 3 April 2009 provided it had paid the rent up to date and delivered up vacant possession of the premises. There was a further option to break the lease on any subsequent quarter day by giving six months’ notice.
The defendant gave notice of its intention to break the lease in April 2009. In January 2009, the claimant had prepared a terminal schedule of dilapidations; however, this was initially done on an incorrect basis and it was not until a meeting between the parties on 1 April 2009 that the issue was resolved. It was agreed on that date that the defendant had substantially complied with its repairing and redecorating obligations but some outstanding items of repair were identified. Since it would not be possible to carry these out by the break date of 3 April, the defendant suggested that it could carry them out within a week thereafter and that it should in the meantime continue its security cover of the premises. Further communications between the parties ensued on that matter and the return of the keys to the premises; meanwhile, the defendant completed the necessary repairs by 9 April.
The claimant applied for a declaration that the defendant had not effectively broken the lease in April 2009 since it had failed to give vacant possession on the break date. It relied on the continued presence of the defendant’s workmen to carry out the required repairs, some items of the defendant’s property, and security staff, who it claimed had prevented access by its representative. The defendant argued that it had given vacant possession or that, if it had not, the claimant had waived the breach. Meanwhile, it gave notice to break the lease in December 2009; it counterclaimed for the return of rent that it had paid up to that date.
Held: The claim was allowed.
The general rule, that a tenant seeking to exercise a break clause had to comply strictly with any conditions attaching to the exercise of that option, applied to formal compliance with formal conditions as to the date of any notice rather than with issues such as vacant possession: Legal & General Assurance Society Ltd v Expeditors International (UK) Ltd [2006] EWHC 1008 (Ch); [2007] 1 P&CR 5 considered. The issue of vacant possession had to be adjudged by reference to the tests established by the case law. This established two separate tests. The first concerned the activities of the party that was required to give vacant possession and asked whether, at the relevant date, that party was using the property for its own purposes, other than de minimis. The second concerned the physical condition of the property from the perspective of the landlord and asked whether there was a substantial impediment to its use of the property, or a substantial part of it; that test was likely to be satisfied only in exceptional circumstances: Cumberland Consolidated Holdings Ltd v Ireland [1946] 1 KB 264 applied; Legal & General considered.
The maintenance of security at the premises after 3 April 2009 was not inconsistent with the giving of vacant possession. The security guard who had challenged the claimant’s representative had needed only to be satisfied as to his right to enter and had never asserted a right to be in possession, such as to deny the claimant a right to enter. Nor did the continued presence of a small quantity of the defendant’s goods preclude vacant possession. What was left was de minimis, it could not amount to a substantial impediment to the claimant’s use of the property and was not kept there for the defendant’s own purposes.
However, the continued presence of the defendant’s workmen to carry out the required repairs meant that the defendant had not given vacant possession to the claimant on 3 April 2009. Although the case was not close to meeting the second test of substantial interference with the claimant’s enjoyment of the right to possession, it met the first test. There was no obligation on the defendant to complete any works before vacating; the obligations were to pay rent up to date and give vacant possession. There was nothing to stop it from clearing out the premises on 3 April, leaving any dispute about unrepaired items to be resolved thereafter. By continuing to carry out works after that date, the defendant had remained in possession simply for its own purposes and its use of the premises was more than de minimis. The evidence did not establish that the claimant had agreed to the defendant’s continued presence or waived the failure to give vacant possession. The making of arrangements to recover the keys to the premises was not an unequivocal assertion that any breach was being waived. Accordingly, the defendant had not validly broken the lease in April 2009.
John de Waal (instructed by Reed Smith LLP) appeared for the claimant; Dermot Woolgar (instructed by Franklins Solicitors, Milton Keynes) appeared for the defendant.
Sally Dobson, barrister
